Importance of Insurance in REIT M&A Deals

Insurance plays a vital role in Real Estate Investment Trust (REIT) mergers and acquisitions (M&A) transactions. John Rayis, a senior strategic advisor for tax and transaction insurance at Lockton Companies, highlighted the significance of insurance in the success of real estate transactions during Nareit’s REITwise: 2025 Law, Accounting & Finance Conference in San Antonio on March 25-27.Rayis shared insights from a REITwise panel focused on REIT M&A activity, underscoring how insurance is becoming increasingly critical for these transactions. Tax insurance, in particular, emerges as a crucial tool in managing uncertainties that can arise during mergers and acquisitions, especially when tax issues are uncovered during due diligence. Rayis compared tax insurance to the WD-40 lubricant, stating that it facilitates the completion of transactions by providing financial certainty to deal parties. He explained that tax insurance covers liabilities that could otherwise hinder negotiations, ensuring that an insurance company will pay for any tax liability, interest costs, penalties, and contest costs incurred during the transaction.Rayis also highlighted the growing trend of using representations and warranties (rep & warranty) insurance alongside tax insurance in REIT transactions. This combination is particularly popular in deals involving “baby REITs” or standalone REITs, where sellers aim for clean exits and buyers demand protection. The use of rep & warranty insurance, coupled with tax insurance, can safeguard both buyers and sellers in these transactions.REITs, or real estate investment trusts, are companies that own or finance income-generating real estate properties across different sectors. To qualify as REITs, these real estate companies have to meet specific requirements. Most REITs are publicly traded on major stock exchanges, offering various benefits to investors. By investing in REITs, investors historically gain competitive total returns through high dividend income and long-term capital appreciation. Additionally, REITs have a low correlation with other assets, making them an effective portfolio diversifier that reduces overall risk and enhances returns.Nareit serves as the global representative voice for REITs and real estate companies interested in U.S. real estate. Nareit’s members consist of REITs and other real estate companies worldwide that own, operate, and finance income-generating real estate properties. The organization also includes firms and individuals who advise, study, and provide services to these businesses, promoting communication and advocacy for the REIT industry.In conclusion, insurance, particularly tax insurance, is paramount in ensuring the smooth execution of REIT M&A transactions. As outlined by John Rayis, the strategic use of insurance, especially tax and rep & warranty insurance, provides financial security and risk mitigation for all parties involved in these complex real estate transactions.